'Sheer ignorance from financial giant Fidelity on student finance' blog discussion

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.




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  • edited 15 August 2013 at 12:15PM
    SparhawkeSparhawke Forumite
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    edited 15 August 2013 at 12:15PM
    I read it and cannot say I am not surprised, what they are saying without saying it is that it is better that the money is better in their pockets earning them dividends/interest than in your own and if you do not do it then you do not care about your angels/childrens/spawns future.

    I do not know how much £125 times 12 months over 18 years with compounded interest is but I took a look at a calculator site and at just 1% interest over the term assuming you put in £125 every month you would end up with £29,581.25

    If at the end of that savings period you want to treat your son or daughter to a trip to Ibiza you have a spare £2,981.25 :)

    At higher interest rates you would do even better.

    This is the calculator I used:

    http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

    In essence they are saying that you aren't savvy enough to keep your mitts off the money so they will do it for a £3000 charge.
    "Don't blink. Blink and you're dead. They are fast. Faster than you can believe. Don't turn your back. Don't look away. And don't blink. Good Luck" - The Doctor.
  • JimmyTheWigJimmyTheWig Forumite
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    Sparhawke wrote: »
    In essence they are saying that you aren't savvy enough to keep your mitts off the money so they will do it for a £3000 charge.
    I'm guessing what they are saying is that the money paid in should probably keep up with inflation.
    The cost of university won't be £27k, it will be £27k plus 18 years of inflation.
    Similarly if you pay in £125 a month you won't end up with £27k, you will end up with £27k plus 18 years of growth.

    There aren't many (any?) savings accounts that currently beat inflation, so if they are managing to do this they are at least doing something right.

    [But I agree using this lump sum for university costs with the current scheme would be a terrible idea!]
  • edited 15 August 2013 at 3:06PM
    mee_2mee_2 Forumite
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    edited 15 August 2013 at 3:06PM
    Ok, I get the whole idea of student loans as a graduate tax. Fair enough.

    But there is still an open question Martin is avoiding:

    Supposing I want to protect my child from the effect of this loan, how can I best do it

    This is the real question I have - what sort of saving do I need? I guess this would be in the form of some annuity or lump-sum saving to account for the 9% repayments that my child will incur?

    thoughts?

    -- Mike
  • callum9999callum9999 Forumite
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    mee wrote: »
    Ok, I get the whole idea of student loans as a graduate tax. Fair enough.

    But there is still an open question Martin is avoiding:

    Supposing I want to protect my child from the effect of this loan, how can I best do it

    This is the real question I have - what sort of saving do I need? I guess this would be in the form of some annuity or lump-sum saving to account for the 9% repayments that my child will incur?

    thoughts?

    -- Mike

    I think the real question is why do you wish to subsidise your future childs income when they are well into adulthood and have a relatively high paying job - surely they can look after themselves?

    If you just want to give them pocket money for the rest of their lives (nothing wrong with that - just unusual) then why does it need to match their student loan contributions?
  • zerogzerog Forumite
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    I guess it's a novel concept in socialist UK for parents to pay for the children's education
  • mee_2mee_2 Forumite
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    callum9999 wrote: »
    I think the real question is why do you wish to subsidise your future childs income when they are well into adulthood and have a relatively high paying job - surely they can look after themselves?

    If you just want to give them pocket money for the rest of their lives (nothing wrong with that - just unusual) then why does it need to match their student loan contributions?


    I guess the impetus would be to incentivise the child to go to uni rather than just find work - by protecting the child from the 9% earnings reduction they would incur.

    Not saying I would definitely do this, but I do think the idea has been glossed over in the loan=tax analogy, and that it merits some discussion
  • JimmyTheWigJimmyTheWig Forumite
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    callum9999 wrote: »
    I think the real question is why do you wish to subsidise your future childs income when they are well into adulthood and have a relatively high paying job - surely they can look after themselves?

    If you just want to give them pocket money for the rest of their lives (nothing wrong with that - just unusual) then why does it need to match their student loan contributions?
    I went to university in a time of means-tested grants. We didn't qualify.
    So my parents paid for my university education. (Fair enough, not the fees, but the principle is the same.) So, in many ways, I feel that I should pay for my children's education. Otherwise I somehow end up being the one in the middle who didn't pay, which seems unfair on the generation above and below.
  • JimmyTheWigJimmyTheWig Forumite
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    mee wrote: »
    how can I best do it
    Depends on what you mean by "how"...
  • edited 16 August 2013 at 2:27PM
    jamesdjamesd Forumite
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    edited 16 August 2013 at 2:27PM
    I think you've over-reacted about this, based on loans rightly being a hot button topic for you.

    The target audience for this Fidelity communication is clearly parents who are going to choose to pay for the university education of their children. If they want to do that, a Junior ISA is one reasonably efficient way to do at least some of it. Of course, it is not necessary for parents to do that and the money will not be the parents to control when it comes to normal university ages.

    Assuming parents did put the money into a Junior ISA, I think that using the pot to pay for university fees would not be a good idea. It's harder to accumulate capital then it is to repay a loan with very friendly repayment terms out of income. In my view it would be better not to spend the pot on fees but instead continue to save it and then use it for a property deposit. Or to use it for a property deposit for a place to live at university, if the parents can assist with the costs of that. May not even be necessary for the parents to pay anything. In some places £27,000 is enough to buy a place outright for cash.

    So I like the saving concept, but not the use of the money for university fees. There are more useful ways to use the money.
  • JimmyTheWigJimmyTheWig Forumite
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    jamesd wrote: »
    I think you've over-reacted about this
    ...
    So I like the saving concept, but not the use of the money for university fees. There are more useful ways to use the money.
    Surely that was exactly Martin's point?
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